ShanghaiTech SEM Working Paper No. 2020-009
Soo Jin Kim
Michigan State University
This paper analyzes the generalized quality differentiation model in multi-sided markets with positive externalities, which leads to new insights into the optimal pricing structure of the firm. We find that quality differentiation for users on one side leads to a decrease in the price charged to users on the other side due to cross-subsidization, thereby affecting the pricing structure of multi-sided firms. In addition, quality differentiation affects the strategic relationships among the choice variables for the platform, so that the platform strategically uses quality differentiation to raise its profits.
Keywords: Multi-sided Market; Quality Dierentiation; Platform Business Strategies
Date Written: July, 2020
Available at SSRN: https://ssrn.com/abstract=3667460